Tax Types & Descriptions

HM Revenue & Customs collects tax to pay for public services. Each year the Chancellor's Budget sets out how much it'll cost to provide these services and how much tax is needed to pay for them. Key taxes that individuals may have to pay include: Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty, Value Added Tax and certain other duties.

Personal Taxes

Income Tax

Income Tax is paid on:

  • your wages if you're employed
  • the profits from your business if you're self-employed
  • your State Pension and any private pensions
  • some benefits like Jobseeker's Allowance, Carer's Allowance and Incapacity Benefit
Capital Gains Tax

CGT is a tax on capital 'gains'. If when you sell or give away an asset it has increased in value, you may be taxable on the 'gain' (profit). This doesn't apply when you sell personal belongings worth £6,000 or less or, in most cases, your main home.

You may have to pay CGT if, for example, you:

  • sell, give away, exchange or otherwise dispose of (cease to own) an asset or part of an asset
  • receive money from an asset - for example compensation for a damaged asset

You don't have to pay CGT on:

  • your car
  • your main home - provided certain conditions are met
  • ISAs or PEPs
  • UK Government gilts (bonds)
  • personal belongings worth £6,000 or less when you sell them
  • betting, lottery or pools winnings
  • money which forms part of your income for income tax purposes
Inheritance Tax

Inheritance Tax is the tax that is paid on your 'estate'. Broadly speaking this is everything you own at the time of your death, less what you owe. It's also sometimes payable on assets you may have given away during your lifetime. Assets include things like property, possessions, money and investments.

Stamp Duty

Stamp Duty is the tax you pay when you buy property or shares. You pay 'Stamp Duty Land Tax' when you buy property and either 'Stamp Duty' or 'Stamp Duty Reserve Tax' when you buy shares.

You pay Stamp Duty Land Tax on property like houses, flats, other buildings and land. If the purchase price is £125,000 or less you don't pay any Stamp Duty Land Tax at all. If it's more than £125,000, you pay between one and four per cent of the whole purchase price.

Value Added Tax

VAT is a tax that you pay when you buy goods and services in the European Union (EU), including the United Kingdom. Where VAT is payable it's normally included in the price of the goods or service you buy. Some goods don't attract VAT.

Each EU country has its own rates of VAT. In the UK there are three rates.

Standard rate: You pay VAT on most goods and services in the UK at the standard rate, currently 17.5 per cent.

Reduced rate: In some cases, for example childrens car seats and domestic fuel or power, you pay a reduced rate of five per cent.

Zero rate: There are some goods on which you don't pay any VAT, like:

    • food
    • books, newspapers and magazines
    • children's clothes
    • special exempt items - for example equipment for disabled people

    Business Taxes (Corporate Taxes)

    Corporate taxes are imposed on domestic and foreign corporations that are engaged in business activities, employ capital, own or lease property, or maintain an office. In UK Corporate tax is not payable by the self-employed but does apply to the following organisations, even if they are not limited companies:

    • members' clubs, societies and associations
    • trade associations
    • housing associations
    • groups of individuals carrying on a business but not as a partnership, eg co-operatives

    Corporation tax is charged on the profits made by companies, public corporations and unincorporated associations. The tax is charged on the profits made in each accounting period, ie the period over which the company draws up its accounts. The rates of tax are set for the financial year April to March; where an accounting period straddles 31 March the profits are apportioned between the two financial years on a time basis.

    Deductions are allowed from a company's total profits for any charges (interest and other payments) it pays and, in the case of an investment company, its management expenses. From April 1996, new "loan relationship" rules have been in force for the treatment of interest and similar payments. A deduction against the tax liability is allowed for income tax deducted at source from interest received (to the extent that it is not used to cover income tax the company itself deducts on interest payments it makes). Double taxation relief for foreign tax is allowed as a deduction against the tax charged on profits.

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